Pressure is mounting on Britain's economic policy-makers to take more decisive action to prevent the worsening financial turmoil from plunging Britain into a deep recession.

Business groups are calling for an urgent cut in interest rates from the Bank of England, to shore up shattered confidence across the economy. Mortgage lenders are hoping for fresh financial support from Chancellor Alistair Darling to prevent the supply of loans from drying up.

World stock markets responded with glee on Friday after US Treasury Secretary Hank Paulson sketched out plans for a taxpayer-backed rescue plan for US banks, expected to be worth up to $1 trillion. The Dow Jones closed up 368 points at 11388, and the FTSE 100 made its biggest ever daily gain of 8.8 per cent.

Yet analysts were warning that the renewed bout of financial turbulence had darkened the economic outlook for Britain. Michael Saunders of Citigroup said it could be time for Darling to follow Paulson in using taxpayers' cash to keep the mortgage markets open. 'So far, official policy measures are mainly palliatives, but do not address the underlying problems,' he said.

Jonathan Loynes of consultancy Capital Economics said the hurried takeover of HBOS by Lloyds TSB last week illustrated the depth of the problems facing Britain's financial sector, and increased the risk of a severe recession.

'The idea that the economic downturn will be significantly milder than that seen in the early Nineties is becoming rather more difficult to defend,' he said.

Some lenders, including Yorkshire Bank, are expected to raise mortgage rates as early as tomorrow, responding to a jump in the cost of borrowing from other banks. Ray Boulger, senior technical manager at mortgage broker John Charcol, is predicting a 'raft' of rate rises, of around 0.25 per cent, next week.

A spokeswoman for the Council of Mortgage Lenders said they would be watching closely to see whether Darling would respond to Paulson's actions.

Meanwhile, business groups are urging the Bank of England to reduce interest rates. 'It has to start to cut as soon as possible,' said David Kern, economic adviser to the British Chambers of Commerce. 'We would like to see a much more alert approach in responding to the problems in the banking sector.'

Mortgage lenders welcomed Mervyn King's surprise decision on Wednesday to extend the Special Liquidity Scheme that has allowed them to swap hard-to-sell mortgage-backed assets for more liquid government bonds. Darling revealed on Friday that he has now made £100bn available under the scheme.